Summary:
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Indices from Wall Street launched new week significantly higher, small-caps outperform
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Potential win of Democrats in the House may put Donald Trump in trouble
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Red Hat (RHT.US) surges on Monday following news of IBM acquiring the company
The US equities benefited from upbeat moods seen on the Old Continent and surged at the beginning of today’s session. This is quite an interesting development as it happens along stronger USD - a situation that tends to put downward pressure on the exporters. However, with over 90% of the S&P 500 companies trading higher investors do not seem to be concerned.
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The latest US500 decline was halted a notch above the support zone marked by the swing level from the turn of April and May. The index climbed back above the 2675 pts handle but fails to distance itself from this area. Note that the reasons behind the latest sell-off still did not recede therefore return of sellers cannot be ruled out. Source: xStation5
The US midterm elections are scheduled on 6 November. As it is usually the case when it comes to the United States it is hard to predict the outcome as neither party is a clear favourite. However, according to latest report Democrats may be set to claim majority in the House of Representatives. Apart from losing lead in this house of the Congress Republicans may face another challenge in the aftermath of the vote. Voices arose saying that in case Democrats win in the House of Representatives they may make extensive use of subpoenas. Under such circumstances numerous White House officials may decide to step down in order to avoid being grilled by the investigators. In case several White House officials decide to leave their post it may constitute a major hurdle for the US President Donald Trump. This is of course part of the political play and can be viewed as a somewhat run-up to the presidential elections in 2020. Keeping in mind that it is unlikely for Republicans to lose majority in the Senate the attention will be mostly turned to the outcome of the House voting.
All three major indices from Wall Street trades significantly above Friday’s closing prices with S&P 500 being the outperformer at press time. Moreover, it should be noted that small-cap index - Russell 2000 (US2000) - is producing even better results today. All 24 industry group subindices from the S&P 500 index are trading higher today with car makers and telecoms being subject to biggest gains. On the other hand, energy and retail sector are among biggest laggards.
US car makers and telecoms surge on Monday. Source: Bloomberg
Company News
As we mentioned earlier car makers are among leaders today. Bloomberg report can be named as a reason behind such a good performance of this industry group. Namely, the financial news company said that China is considering a tax cut that would boost domestic automotive market. The tax on car purchases could be cut by a half, to 5%. It is a countermeasure aimed at boosting demand following a drop in the consumer’s purchasing power in the aftermath of the trade conflict. In turn shares of Ford Motor (F.US), General Motors (GM.US) or BMW (BMW.DE) surged.
There is one big story on the US stock market today and it is acquisition of Red Hat (RHT.US) by International Business Machines (IBM.US). IBM will acquire the former in a stunning $34 billion deal in order to bolster its presence in the cloud software market. According to Ginni Rometty, the CEO of IBM, the move is aimed at providing revenue growth and cost synergies are not the case. Such a development would be more than desired by Rometty as IBM suffered almost 25% decline in revenue since she took over in 2012. IBM will pay $190 per Red Hat share implying a 63% premium over Friday’s closing price. Red Hat shares surge over 47% today. On the other hand IBM is trading 1.6% lower.
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